It’S a new year and many are wondering whether we’ll see new all-time highs. Well, that’s exactly what was covered in a recent update by the folks over at arcane research, but that’s only the tip of the iceberg when it comes to the wealth of information contained therein. In this video, i’m going to take you through the report page by page i’ll, also be tying this into some of my own personal predictions and what it could all mean for your portfolio. Don’T go anywhere before the start of today’s show. There are one or two things that you need to know.
I may be a dude who knows about crypto, but if you’re after financial advice, then the answer is no. This joint is just for entertainment and education. So please do manage those expectations. If you’re new to these shores, my name is guy and crypto, is what i adore. I cover all facets of this new frontier.
So if crypto knowledge is what you’re after you’ll find it right here, i talk about the markets as well as hot coins and tokens. So if you want the last word on all those, this is where it is spoken now before we crack on just so. You know you can skip around using the timestamps below watching all the way through helps the view count increase, so do bear that in mind. Pretty please right. That’S enough food for thought.
Let’S take a look at the arcane report, like i always do with these reports. I want to quickly take a look into the company behind it. It helps to keep things transparent. So arcane is a company. That’S based in oslo, norway.
It also has offices in london and stockholm. Arcane crypto was founded in 2009 as a norwegian, limited company and according to disclosure on its website, quote arcane crypto develops and invests in projects focusing on bitcoin and digital assets. In order to build a bridge between the new digital economy and the traditional economy, the ceo is a chap called torbjorn. Bull jensen probably not pronounced like that. Who seems to have a background in economics and financial services.
Now, funnily enough, in august of 2020, arcane actually became a public company. After a share repurchase agreement. You can actually take a look at all of its financials and growth plans on its website. Now i actually found these quite interesting. They are diversifying into a number of different crypto business lines, which includes the likes of mining, otc trading and crypto investment products.
However, what arcane is probably best known for is its crypto research, perhaps optimized by its weekly crypto updates. These are institutional grade reports that go out each week to all of those who subscribe to the service, including yours. Truly. I really do love these reports because they’re incredibly data rich and they cover trends and topics that you often won’t see on traditional crypto media. It’S free to sign up for the short form summary in the newsletter.
However, we’ve signed up for the paid version, given that this includes the full report. This was a no-brainer for us, given how cheap it was. Plus there was a free trial into the bargain, and you know how much i like those anywho. The most recent crypto report appears to have been made public and i’m glad it was that’s because more users in the space could get a glimpse into arcane’s. Crypto crystal ball and that’s the report that i’ll be going through today.
The first slide that i want to look at over here is this really helpful timeline of what happened in 2021 and it’s broken up into different quarters. Not only that, but each of these quarters have been given specific themes: q1 being the trend of companies investing in bitcoin, microstrategy square tesla, quite a crazy time. Then in q2 we had the china and esg fudd. Narrative bitcoin took a hit not only from the ccp, but also the msm hash power collapsed, but happily is already back above its previous all-time high. Let’S also not forget that this fudd helped to precipitate that epic liquidation-inspired crash that we saw in may q3 was all about nation-state.
Adoption. All eyes were on the g buchelli, as he made el salvador, the first country in the world to adopt bitcoin as a legal tender, something that would have been viewed as impossible just the year before and then of course, q4 was all about that wonderful metaverse. It exploded etfs they launched, but not the ones that we wanted, and global macro jerome slowing down the money printer feel free to go through this page in closer detail. When you have a moment, it’s pretty crazy to see just how much actually happened last year. Moving over to the next slide, it shows the relative performance of bitcoin versus established asset classes like stocks and gold.
Now, both the s, p, 500 and bitcoin were up over the year, although bitcoin performed significantly better. It’S interesting to see that arcane has the view that bitcoin was a risk-on asset in 2021. This is something that i maintained throughout the year. Of course, bitcoin is a lot more volatile, and what this means is that, if it were a risk on asset, it is likely to swing around much more wildly in 2022 than stocks. If the s p 500 were to continue to rally, then bitcoin would outperform.
However, if it were to fall, then we could see bitcoin drop by even more. This is exactly what happened back in the march 2020 crash either way. The folks at arcane predict that bitcoin will outperform the s p 500 this year. Let’S just hope that its outperformance is to the upside. Oh, yes, any gold bugs out there well something that really surprised me was the performance of the yellow metal, it’s in fact down by seven percent over the year.
At a time when we had record inflation. That was almost seven percent and that’s if you even believe the official inflation numbers more about that in the description speaking about bitcoin’s risk-on performance. This chart over here helps to further drive home that message. It maps the performance of bitcoin with that of the vix index. Now, for those who don’t know what the vix is, it’s a measure of the implied volatility on s p, 500 index options, essentially a rough judge of fear in the financial markets anywho.
What this chart shows is that in times when the traditional markets go through, these massive jumps of fear bitcoin sells off, as you can see, prior to covid market fear had almost no impact on bitcoin. The relationship started to get closer as we rolled into the 2020 pandemic and in 2021 it was closely linked. So what this shows is the broader institutionalization of bitcoin that these investors are indeed viewing bitcoin in their risk on bucket. When it comes to arcane’s prediction, though, it expects this relationship to continue in 2022. This is something that i talked about at length in my video about the fed tapering this year.
That’S in the top right now on to the next page, though, and the talk is all about inflation. This trend is incredibly stark. What’S even crazier, though, is how much this inflation has overshot the predictions of expert economists, it’s as if they didn’t think pumping trillions of dollars into a lockdown economy was going to lead to inflation. However, the researchers think that this inflation is likely to continue reaching new highs in 2022, not much faith in our man jay pal. Moving on, though, this next slide here takes a look at the performance of the top three coins by market cap on cmc bitcoin beat the s p 500, but eth tranced, btc’s performance and binance’s bnb coins performance made a mockery of both now one of the main Reasons behind this price rally is no doubt the explosive growth in adoption of the binance smart chain as the native currency that powers this ecosystem demand has been surging.
On top of that, though, binance has also been burning. The outstanding supply of bnb. This is in its quarterly coin, burns, the latest of which took place in october last year. Now, in total, there were 17 coin burns since inception. You can see the total numbers over here, it’s pretty crazy.
Now, of course, you don’t need to be a phd in economics to understand that decreased supply with increased demand means a higher price. Tell that to those economists who undercounted inflation when it comes to arcane’s predictions on this page, it thinks that xrp and cardano will fall out of the top ten, a pretty bold claim, indeed, which i’m not sure is wholly correct. The next slide, though, is pretty damn illuminating. Basically, it shows us just how much alts have outperformed bitcoin. What i do find surprising, though, is the fact that the mid capitals have outperformed the small caps considerably, so this goes against the often prevailing wisdom that you need to go digging on page 4 of cmc to find coins with strong potential.
The report does note, however, that part of the reason for this is the fact that the alternative layer ones to ethereum are what make up much of the mid-cap. These are your avalanches, solana’s, polka, dots etc. A prediction it does make, however, is that the small cap index is likely to outperform the rest next year. Another pretty ballsy call on to the next slide over here, and we have the evolution of the bitcoin fear and greed index. For those who don’t know, this is a general measure of the bitcoin market sentiment at the time.
It’S a combination of volatility, market momentum, social media sentiment, bitcoin dominance and google trends anyways. It works inversely from the vix, the closer it is to 100, the more greed there is in the market, the more fomo, the closer that it is to zero. The more fear there is in the market no surprises that we had the most sustained period of fear. After the shakeout in early may for at least three months, it remained pretty damn low. Now, if you’d use the index as a measure of when to buy the dip, then it could have been a great indicator because bitcoin reached its lowest level when the index dipped close to 10
Then we had that epic rally into august now.
This is something that arcane also predicts going into 2022. The index will present plenty more of these buying opportunities, although i wouldn’t rely solely on it. I have talked about some other sentiment indicators, as well as the fear and greed index in a separate video of mine, which is in the top right now. This next chart over here shows the bitcoin spot volume not too much to read into here. Apart from the fact that the volume was four times higher in 2021 than in the year before on to the next bunch of slides, though – and this is all about alt-season baby – one of the most telling indicators of the alt-season has, of course been the fall in Bitcoin dominance for those who don’t know this is the percentage of the market share that is taken up by bitcoin.
As you can see, we started to see a massive rally in alts relative to bitcoin in the first five months of the year. This was a combination of ethereum, defaumania and meme coin moonboys. However, the dominance seemed to have reached a flaw at 40 percent in june, and traders were constantly switching between narratives. The authors think that this is likely to continue bouncing between narratives, but i personally happen to think that we’ll see the dominance falling this year – and this is because of this next slide over here – it’s the price of eth in terms of bitcoin, the trend is clear: Eth’S market cap has been climbing relative to bitcoins, and hence the price of eth in sats has also been on the rise over the year. The eth btc pair has risen by over 400 percent, and this has been driven by a number of factors.
These include defy demand protocol upgrades eip 1559, for example, and the nft mania that drove network demand to all-time highs. A prediction arcane does make for this year is that this is all likely to continue and eventually flip bitcoin’s market cap. Already eth’s market cap is half that of bitcoins and 2022 is going to be pivotal for ethereum we’re likely to see the proof of stake. Merge by the end of q1, which is a big moment for the transition to eth 2.0, now feel free to watch.
My latest video on eth, in the description for my take on it, but eth did not go unchallenged last year. In fact, it was the year of alternative layer ones, as people got frustrated by those high eth gas fees. They started to move over to alternative smart contract blockchains. The return difference on some of these is incredible. Some of the best performers there are the likes of solana and phantom, which i hold as well as avalanche, used to hold and terra luna, as well as harmony.
The authors predict that this trend is likely to continue well into 2022 as these assets outperform eth. I think that it’s just a reflection of the fact that eth is at such a high base already, but a well-diversified portfolio of layer ones, including eth, is your best bet now. This next page here is something i would prefer to gloss over, but it has to be mentioned. Meme coin mania, first came the doge season and then came the rise of ship. The main drivers here were a combination of elon musk, the amateur retail investor and the power of memes, some truly historic prices and valuations.
Now i don’t want to make predictions around meme coins, because you can never truly know whether retail will fomo into the next dog-themed meme and drive it to meteoric highs. However, the authors of the report claim that they will fade into obscurity and will quote be a historic relic of absurd times now, something that i don’t think will be a relic of absurd times is what’s going on in the nft space. That is what is shown on this next slide here. It’S the nft sales volume on openc from less than 100 million dollars at the beginning of the year to a mind-blowing 3.4 billion dollars in august.
Now, if you guys have been following the content on this channel over the past few weeks, you’ll have seen my continued emphasis on the nft space. I’Ve even picked up a few myself. If you take a look at arcane’s prediction, it thinks that in 2022 we are likely to see traditional gaming companies implement more nfts within their games. This is exactly what i’ve been saying over the past few weeks and why the coin bureau has decided to cover more game fire related content, it’s the new frontier of gaming. Let’S move on, though, to the next slide.
The next section of the report looks into the crypto derivatives market, and it starts with this page over here, which has the open interest of bitcoin. What this shows is that quote: crypto traders have a much heftier risk appetite than the average joe leading to massive volatility. Quite simply, retail traders taking on high leverage to bet on the price of bitcoin. We had a massive increase in the open interest until about april when it started to fall precipitously. That was, of course, due to the cascading liquidations, which we know all too well.
It happened at least three times throughout the year and no doubt contributed to that extreme volatility that we saw in those periods. One of the predictions that arcane makes is that retail traders will continue to trade with high leverage and continue to get wrecked now. I would hope that this doesn’t happen and that they watch my video on the market risks of leverage, that’s in the top right for your viewing pleasure now. This next slide looks at the funding rates on perpetual bitcoin swaps. For those who don’t know, this funding rate is the periodic payments that either long or short traders make in order to take on a perpetual swap.
Essentially, it’s a measure of how strong the sentiment is in the futures market, based on how much more traders are willing to pay for a futures position over a spot. The observations in this chart tie in with the ones on the previous page in that, at the beginning of the year, these rates surged, as traders bought into those long perpetual positions. Of course, it flipped to negative, as fear hit the market in the q2 sell-off. Since then, the funding rate flipped from mildly positive to mildly negative, but the authors do make a prediction that in the new year we are unlikely to see that massive amount of extreme greed that pushed it in q1 of 2021. They don’t think that we’re likely to see these sustained funding levels again this year.
Something else that i found particularly interesting was this slide that compared the three-month futures basis of the cme, with those of the offshore exchanges. Quite simply basis is the difference between the spot and three month, futures price. What we see here is that, just prior to the shakeout in april, the basis on the offshore exchanges soared. In fact, it was over 33 percent higher than that of futures on the cme exchange. So, what’s the significance of this?
Well, it’s mostly institutions that are trading cme futures, while retail money is trading on the offshore exchanges when there’s a large divergence between the basis of these. It’S an indication that retail is getting way too excited with its projections. In this case, the gap almost collapsed in the may liquidations and is now trading much closer together. So the main point to take away from this is mind. The gap anyway.
Arcane thinks that this basis, divergence is likely to be a thing of the past and won’t occur again this year. I think that’s about right. This is mainly because of the fact that institutions are also trading between these exchanges, as they realize that the cme is not the only place they can make these trades. Now. I don’t want to dwell on this slide too much, as i’m sure that it will trigger ptsd in quite a few wrecked traders, but this is the amount of liquidations that took place in 2021, a staggering 84 billion worth of longs and 46 billion dollars worth of Shorts that have been chopped down, r.
P arcane thinks we’re likely to see this continue into 2022, as quote, animal spirits continuously attracts hopeful traders to the casino that is 20 to 100x longs and shorts in bitcoin. Well, i for one hope not and there’s good reason to be optimistic about it. Firstly, i would have hoped that more people watch that video i talked about earlier, but, more importantly, many of these offshore exchanges have now voluntarily decided to reduce the max leverage that traders can take on. These include the likes of binance and ftx. This next slide over here takes a look at the growth of open interest on the cme institutional adoption of bitcoin and ethereum futures has been on the rise.
Part of this is no doubt thanks to the launch of those bitcoin futures etfs in q3 of this year. Now, as i stated in my video about my predictions for 2022, i think that an ethereum futures etf is also likely to drop soon. This could mean further institutional demand for those cme ethereum futures. It’S not just futures instruments that have seen wide scale adoption, though it’s also growth in the options market. What’S interesting, though, is how much of this open interest has been traded on derivate and offshore exchange.
It ended the year with close to 93 percent of the market. Share this, despite the fact that these options are traded on a number of different platforms, including even the cme. The report’s authors, however, do predict that this year, deribit is likely to face competition from other trad phi companies. I happen to agree as it appears that a number of wall street banks are looking to launch bitcoin options desks now. Speaking of institutional adoption, that’s the topic of our next section.
As i mentioned earlier in the video, there were a lot of companies that bought bitcoin throughout 2022 tesla square, metoo, etc, but there was one company that did the bulk of that buying, and that was of course, microstrategy. In fact, michael saylor was one of the first ceos of a publicly traded company to pursue this strategy. He started the trend all the way back in august of 2020, when microstrategy bought 250 million dollars a bitcoin. When the price was around 9k, it has been buying the living out of bitcoin all through 2021, with the last purchase being on the 30th of december. It now holds a total of 124 391 bitcoin that have been purchased at an average price of about 30 159.
The result of all this is that microstrategy is an outlier when it comes to corporations with bitcoin on their balance sheets, something. The report notes here is the fact that esg investing concerns are likely a barrier to further institutions, picking up bitcoin. It was one of the reasons: tesla dropped payments, for example. Now. This is something that i talked about in my video on esg, investing which i’ll leave in the description either way.
It’S of the view that microstrategy is likely to continue being a dominant buyer in the corporate space this year, irrespective of whether companies are adding bitcoin to their balance sheets. The amount of corporate activity in the crypto space has been off the chain. In 2021, there were 172 crypto related m, a deals. This was three times higher than the previous record that was set in 2018.
It’S not just that, but also the amount of crypto unicorns i.
startups with valuations over a billion dollars now stands at over 64.. What’S even crazier is that some of these companies are still so young, for example, in ftx’s latest funding round it was valued at over 32 billion dollars. This is a company that was founded fewer than four years ago. Bear in mind that this is almost half the market cap of ice, intercontinental exchange, the owner of the new york stock exchange and a few others, a company that is over 22 years old mental.
Now, speaking of stock exchanges, there was also a flurry of public listings for crypto companies. Everything from arcane, the authors of this report to coin shares mining companies and the biggest of them all coinbase. They also give you an idea of some of the biggest listings that we could expect this year. Some of the best known on that list are perhaps circle. Financial and bullish global expect to see many more of these crypto companies going public.
One that, i think is missing here is the potential for a binance u.s ipo, for example. This is something cz has mentioned before. The next two pages here are on collective investment vehicles. This shows the massive decline that we’ve seen in the grayscale premium.
In fact, this has gone from a premium to a discount. This is mostly because of the proliferation of other etf instruments, which have severely dampened the desire for grayscale shares. This discount is one of the reasons that grayscale has filed an application for an etf. This will allow it to compete with an instrument, that’s easy to redeem and hence track the price of bitcoin that much more closely whether the sec will approve this spot. Etf application is a whole other subject more about that in the description and speaking of etfs.
This next slide shows the immense growth that we saw in 2021. The canadian etf instruments were initially leading the way, but the launch of us-based instrumentals is likely to take over in 2022. I think that this is likely to happen before q2 of this year, especially if we are to get a spot-based instrument approved by the sec. Arcane happens. To think that we could see over 1 million btc being held by these funds before the end of the year.
On to the final section, though – and this is on blockchain activity – the first chart here is something that we knew all too well. The infamous china bans crypto fud, except this time it was not fud. It was very real, as we saw the ccp outlaw crypto mining. This led to an almost calamitous fall in bitcoin hash rate. However, for every chinese miner that shut down shop, there was another miner elsewhere.
Opening up one of the biggest recipients of this was, of course, the usa and particularly states like texas. You can see the move of this hash power away from china over the year with this chart over here from 53 percent of the hash rate in china at the beginning of the year to zero. At the end, the us now commands over 35 percent of the hash rate, pretty crazy when you think about it. What’S even crazier than that is the fact that this hash rate is now back above where it was before the crackdown talk about a robust network. The authors think that this is likely to continue climbing this year, as well as diversifying globally all places apart from china.
Ain’T that a shame now this page here is also pretty eliminating. It further helps to debunk that tired narrative out there that bitcoin is bad for the environment. In fact, a large proportion of bitcoin hash rate comes from energy sources that are generated cleanly. If we were to compare this to the energy sources of countries around the world, it’s more sustainable than all of them. One could even make the case that bitcoin miners could help to bring about further green energy supply sources.
That’S the topic of another video, though, which i’ve left in the description now this chart over here shows the average transaction fees on the bitcoin and ethereum networks. Ever since july, the fees on eth have skyrocketed compared with those of bitcoin. The main reason for this is, of course, on-chain demand, demand from d5 protocols and, of course, nfts. Well, there are changes coming which could make the blockchain more scalable. It has meant that there is a dire need for layer, 2 scaling solutions and even alternative layer ones.
This is something that could be seen in this chart over here. The tvl in other protocols has been steadily creeping up in 2021.
We went from almost 100 of the tvl in ethereum at the beginning of the year to almost 60 by the end of the year. Some of the biggest recipients here are, of course, the likes of solana and binance, but don’t discount the potential of layer twos to also grab a massive chunk of that tvl polygon is on the rise and given some of the latest developments here, its tvl is poised To challenge some of the layer ones now you can find out a lot more about polygon from my recent video on it now. Another really dominant trend that we saw in 2021 was, of course, the growth of stable coins, a 500 rise over the year, driven by defy and transactional demand.
What’S interesting, though, is the predictions the reports authors expect this to continue rallying as well as usdc to overtake tether. If you watched my video on my 2022 predictions, i also happen to think that this will become a reality. It’S merely the fact that the collateral backing usdc is a lot more reputable than that of usdt. Of course, i think that the real story next year will be how much decentralized stable coins reshape the landscape. We’Ve already seen stable coins such as terra’s ust, overtake dye in recent months.
I wouldn’t think it’s inconceivable that it lands up in the top 10 of cmc rankings by the end of the year. Wouldn’T that be something that’s it for the report. Folks, i really did enjoy going over it, and there is a lot more that i could have covered but left out for the sake of time now i’ve linked to it below, and i do encourage you to give it a read when you have some time to Spare, if there’s one thing, that’s for sure it’s that this year is going to be a pretty crazy one. Of course it’s not going to be smooth sailing and there will be challenges. But if there’s one thing that last year taught us it’s this now, i want to hear your feedback, though, what do you think of some of these predictions?
Do you have some predictions for me? I’D love to know in the comments down below now come closer, as i have a little secret to tell you what you’re, seeing here on youtube is but a fraction of what i share on other social channels. These include my telegram insider channel for daily market analysis and thoughts, my twitter for announcements and the occasional post, instagram and tick tock for behind the scenes, views and memes and lastly, but definitely not leastly my weekly newsletter. It’S here that i share my crypto tips as well as a breakdown of my personal portfolio. It comes only once weekly, as well as with a spam free guarantee.
The links to all of these are in my socials page below. Finally, if you found this video helpful slap a like on it, subscribe and ping that bell as well to make sure you never miss another one time’s up for this crypto guy, but i’ll, be seeing you guys very soon.